Are you a parent that wants to help your child with buying property in Brisbane, Hobart, Canberra or Sydney? Before you cash in that policy or take a lump sum out the bank for them to use as a deposit, a family guarantee might be a better option.
What A Family Guarantee Entails
A family guarantee is when you grant your bank permission to use some of the equity of your current property to provide security on a home loan. This means that the bank will now take a mortgage over your child’s new property in addition to your existing property, and it’s an arrangement where everyone wins. Your bank benefits from the extra security, your child benefits from getting over the often-insurmountable deposit requirements, and you benefit from being able to help your children without making an upfront cash payment.
If you’re still on the fence, you should know that you won’t be allowed to place your entire house as guarantee, and therefore risk losing it. Most banks limit family guarantees to just 20% of the loan amount required. This means, by reducing your child’s loan to less than 80% of the total purchase price, you’re saving them from having to pay stamp duty, legal costs, and monthly mortgage insurance – unexpected costs that many new homeowners struggle with.
The loan will remain in your child’s name and not yours, further limiting your liability. Should the worst-case scenario occur, and your child finds themselves unable to pay the loan, their property will be sold before your guarantee is activated, and even when it is activated, it will be limited to the amount you put up as equity.
Your home doesn’t even need to be completely paid off – as long as the loan amount required doesn’t exceed 80% of your current property value. Most people find that after three years of payments on their children’s part, they can have the guarantee lifted.
Before you commit to providing your child with a family guarantee, you’ll need to first investigate whether or not your bank allows it and if they can offer you the best possible offer. As property specialists, the team at Wiseguru recommends that you visit them first as we could secure a better deal for you with better terms and conditions.
Related Tag: Australian Housing Market